The effectiveness of tax administration in Uganda : evidence from Uganda Revenue Authority

Abstract

Uganda’s tax to GDP ratio is among the lowest in the East African region and lags behind the NDP target of over 30% compared to the current level of about 12.5%. Effective tax administration is a key factor in improving tax revenue, which is an important source of development and recurrent finance in light of dwindling external financing. This study sought to evaluate the effectiveness of tax administration in Uganda to understand the key drivers and existing challenges. The study was premised on three objectives, to analyze the tax administration reforms at Uganda Revenue Authority, to assess the challenges facing tax administration at Uganda Revenue Authority, to develop the possible strategies to improve tax administration at URA. To achieve these objectives, the study employed a survey research design. Data was collected using a semi-structured questionnaire from several taxpayers. A total of 103 questionnaires were administered to different categories of respondents and 96 questionnaires were completed representing a response rate of 93.2%. The collected data was edited, coded and entered for analysis using the Statistical Package for Social Sciences computer package. Both descriptive and inferential statistics were used. The research findings revealed that tax reforms implemented in the past have improved tax performance in Uganda, but there is still need for further improvements in view of existing challenges. The study showed that reforms to introduce the e-tax system, use of ICT, creating an e-database for taxpayers have led to improved tax administration and thereby improving tax revenue performance. The study also identified the key challenges hindering the present tax administration regime from propelling tax revenues to the desired targets to include slow and limited implementation of tax administration modernization/automation, loss of tax autonomy due to regional integration efforts, discrepancies in the tax collection system that curtail expansion of the tax register and lack of a clear policy on tax incentives and exemptions in Uganda. The study respondents suggested key solutions for these challenges including, implementation of compliance improvement programs targeting different tax payers, improved accountability by tax administration bodies, undertaking cost-benefit analysis of tax exemptions to establish their efficiency and effectiveness, and introduction of long term revenue planning strategy. Following from the study findings and respondent suggestions, the researcher makes three key recommendations. The first recommendation is for Government, through URA to maintain and enhance the tax administration reforms that have been introduced, especially efforts towards harmonization of cross-government and across-region data so as to minimize tax evasions, and expand the tax base and the taxpayers register by incorporating the currently excluded but eligible taxpayers. The second recommendation is for Government, through the Ministry of Finance Planning and Economic Development to develop a policy on tax incentives and exemptions as well as undertake studies and cost-benefit analysis on established tax incentives and exemptions to inform the development and periodic review of the policy. The third recommendation is for Government through URA to maintain and enhance voluntary compliance programs and initiatives targeting and incorporating as many eligible taxpayers as possible as these have proved more effective than the traditional compliance measures like audits, inspections and enforcements.